The physical gold ETF shows that its redeem-for-gold feature is no gimmick.
The Merk Gold Trust ETF (OUNZ), which came to market as the first ETF to allow even the smallest retail investors the option of redeeming their shares for gold, did just that this week for the first time—completed its first redemption. The catch is that the investor paid a lot for it: The fee to redeem amounted to 4.6 percent of the $70,000 value of the investment, by our calculations.
To be sure, that’s a high price tag—all the more so considering that OUNZ is up just less than 1 percent since it came to market in mid-May. And Axel Merk himself, the brains behind the ETF, has said before that this redeem-for-gold feature is relatively costly, and not necessarily a good idea for smaller amounts of gold.
Still, the significance of the OUNZ redemption is that it proves it can be done. OUNZ’s patented redeem feature—while somewhat pricey—is no gimmick, to quote ETF.com’s analyst Scott Burley, who pointed that out in a recent blog.
Merk Investments said today in a press release that a retail investor exchanged 5,406 shares of OUNZ for 54 1-ounce American Buffalo gold coins in a process that took roughly a week to be completed. Based on the $1,297 per ounce price of gold on July 16—the day the redemption order went into motion, the investor wanted to redeem $70,038 worth of gold, and paid $3,240 for it—or 4.6 percent of the value.
Physical gold ETFs have been around for almost 10 years, but none has ever allowed smaller investors to take delivery of the precious metal. Instead, the trusts—such as the SPDR Gold Trust (GLD | A-100) and the iShares Gold Trust (IAU | A-100)—allow only authorized participants to take delivery, and only by redeeming whole creation units.
In a fund like GLD, that means redeeming a minimum block of 100,000 shares worth about $12.5 million at current prices. But as noted, small deliveries of gold in OUNZ are costly, as the fee schedule below shows.
|1oz. American Gold Eagle||$60||$2,500|
|1 oz. American Buffalo||$60||$2,500|
|1 oz. Australian Kangaroo||$40||$1,600|
|1 oz. Canadian Maple||$42||$1,600|
|1 oz. Australian Bar||$30||$1,200|
|10 oz. Australian Bar||$25||$1,000|
|London Good Delivery Bar||$32||$0|
OUNZ currently owns more than 40,000 ounces of gold held in a secured bank vault, valued at more than $53 million. Since it came to market in May, the fund has rallied 0.85 percent.
Gold prices are up roughly 8.3 percent year-to-date.
Chart courtesy of StockCharts.com